American International Group Inc. has told regulators that letting it fail could cause “turmoil in the U.S. economy and global markets” and wipe out “a number of U.S. life insurers.”
AIG, New York, predicts the calamities that would occur if it failed in a “strictly confidential” document that has undergone several drafts. The draft obtained by the NU Online News Service was dated March 6.
After reporting a $62 billion net loss for the fourth quarter of 2008 last week, AIG announced that the government was providing $30 billion in additional capital and easing the terms of existing financing arrangements.
The measures are necessary, because what happens to AIG “has the potential to trigger a cascading set of further failures, which cannot be stopped except by extraordinary means,” AIG says.
The systemic risk is “principally centered in the ‘life insurance,’ business because it is this subsector that has the greatest variety of investments and obligations that are subject to loss of value of the underlying investments,” AIG says.